Balance of Power Oil Technical Analysis and Balance of Power Oil Trading Signals
Created by Igor Livshin
Balance of Power measures the strength of the bulls versus the bears by assessing the ability of each to push crude crude oil price to extreme levels.
Crude Oil Technical Analysis & How to Generate Oil Trading Signals
When using this technical indicator, the zero line crossovers are used to generate oil signals.
The center is marked as the zero line, levels oscillating above or below are used to generate oil signals.
Buy - The scale is marked from Zero to +100 for bullish market movements
Sell - The scale is marked from Zero to -100 for bearish market movements
How to Generate Buy & Sell Oil Trading Signals
Buy Signal
When the BOP crosses above the zero a buy crude oil trading signal is given.
Also when the BOP is rising, the oil market is in an upwards trend, some traders use this as a buy oil signal but it is best to wait for the confirmation by moving above the zero mark. As this will be a buy oil signal in bearish territory & this type of signal is more likely to be a oil whipsaw.
Sell Signal
When the BOP crosses below zero a sell crude oil trading signal is given.
Also when the BOP is declining, the oil market is in a downwards trend, some traders use this as a sell oil signal but it is best to wait for a confirmation by moving below the zero mark because this will be a sell oil signal in bullish territory and this type of signal is more likely to be a oil whipsaw.
Sell and Buy Oil Trading Signals
Divergence Crude Oil
In oil trading, divergences between the BOP and crude crude oil price can be used to effectively identifying potential reversal and/or oil trend continuation points in the crude crude oil price movement. There are several types of divergences:
Classic Divergence - Oil Trend reversal crude oil trading signal
Hidden Divergence – Oil Trend continuation
Oil Overbought/Oversold Conditions
This Balance of Power can be used to identify potentially overbought and oversold conditions in crude crude oil price movement.
- Overbought/Oversold levels can be used to provide an early warning for potential oil trend reversals.
- These levels are generated when the indicator clusters its tops & bottoms thus setting up the overbought and oversold levels around those values.
However, crude crude oil price may also stay at these overbought and oversold levels & continue heading in that direction for a while and thus it's always good to wait until the BOP crosses over Zero mark.
From the oil example shown below, even though the Balance of Power showed the crude crude oil price was oversold, crude crude oil price continued moving downwards until the indicator crossed over to above Zero.
Technical Analysis in Crude Oil Trading
